Generation Y – How and When to Save

THE WOODLANDS, Texas -- Not having enough money for retirement is one of the top financial concerns of Generation Y. With a recent increase in government debt, it seems that Generation Y would be spending more on taxes and saving less, but that is not the case.

According to the Spring 2013 Merrill Edge report, young investors have “been saving aggressively, averaging $55,000 already saved for retirement. Young investors are also starting to save much earlier, with an average starting age of 22, while Baby Boomers started saving on average 13 years later at the age of 35.”

Although saving isn’t easy, rest assured that Generation Y is doing just fine. Here are some tips on how to save:

Between the ages of 18-34 is often a time in your life where, sometimes for the first time, you have to think through and be held accountable for all of your financial needs. With immediate purchases and payments on your mind, like paying off student loans and buying your first home, contributing to a retirement account can seem less important because it is so far off.

Saving just a little is better than not saving at all! Start small. Take a small percentage of each paycheck (start with 3-5%) and plan to increase that percentage each year. There is no “magic number” that any given person should save. Consider how much you earn and your present financial situation to come up with the best number for you.

If you get used to saving at a young age, it will become a habit. As you get older, saving part of each paycheck will come naturally, and therefore, be less painful. You won’t be tempted to buy a luxury item in lieu of saving. As your salary increases, so will your retirement savings thanks to that locked in percentage that you put aside for it.

If you have an employer that offers a 401(k), make sure to save a high enough percentage to where your employer will match the amount that you put in. Oftentimes, saving just 3% is not enough. If you can, increase that percentage so that you don’t miss out on “free money” that is being offered to you just for saving enough of your salary.

At a young age, it is typically not a bad idea to invest more aggressive mutual funds. Since you have a ways until retirement, your portfolio can more easily handle steeper gains and losses. Make sure to always keep the “big picture” in mind. Stock prices will inevitably fluctuate, so your goal should be a long-term upward trend rather than concerning yourself with the short-term. With the market currently at an all time high though, it would be smart to talk to a financial advisor before making any big purchases.

Remember, there will come a point in your life where you will either choose or be forced to retire, so start saving for it.

For the complete Merrill Edge report follow the link below.